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Economic Substance

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Economic Substance

In 2016 the EU Council committed to coordinated policy efforts in the fight against tax fraud, evasion and avoidance and adopted the "Conclusions on criteria and process leading to the establishment of the EU list of non-cooperative jurisdictions for tax purposes".

The Code of Conduct Group were then instructed by the EU Council to undertake a screening process whereby jurisdictions, including Guernsey, were assessed against three standards in respect of:

i) tax transparency,

ii) fair taxation, and

iii) compliance with anti-Base Erosion and Profit Shifting ("BEPS") measures.

No issues were raised in respect of Guernsey's standards of tax transparency and anti-BEPs compliance however, during the screening process the Code of Conduct Group expressed concern that Guernsey did not have a "legal substance requirement for entities doing business in or through the jurisdiction". The Code of Conduct Group were concerned that this "increases the risk that profits registered in a jurisdiction are not commensurate with economic activities and substantial economic presence".

These concerns were articulated in a letter to Guernsey, in November 2017, and in response Guernsey made a commitment to address these concerns by the end of December 2018.

As identical concerns were raised in Jersey and the Isle of Man, the Crown Dependencies have worked closely together to develop legislation to address the Code of Conduct Group's concerns. Representatives from the relevant industry sectors have also been involved to ensure the legislation can work in practice as well as meet the requirements of the EU.

The legislation will require companies tax resident in Guernsey, undertaking specific activities, to demonstrate that they have sufficient substance in Guernsey. With effect from 1 July 2021, the legislation will also extend the scope of economic substance to partnerships.

Downloads

Form 706 - Company Registration Form Form 707 - Company Requesting Non Resident Status Form Form 708 - Company migration Form 709 - Company liquidation Form 715 - Partnership Registration Form

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